Russia Scales Down Asset Sales as Medvedev Bemonas Delays

By Scott Rose and Olga Tanas -
Jun 27, 2013

Russia will raise a third less than
previously estimated from asset sales in the next three years,
downsizing the program as Prime Minister Dmitry Medvedev
criticized the lobbying that’s putting a brake on plans.

Revenue from asset sales will bring the budget about 630
billion rubles ($19 billion) in the next three years, including
about 180 billion rubles in 2014, Economy Minister Alexei Ulyukayev said at a government meeting today. That compares with
a planned 925.9 billion rubles written into the three-year
budget, according to the Economy Ministry.

Plans for Russia’s biggest wave of asset sales since the
1990s have hit a snag as companies including pipeline operator
OAO Transneft pushed to retain state support and market
turbulence held up offerings. President Vladimir Putin ordered
the government last year to have a plan to exit all companies
except for raw-material producers, natural monopolies and
defense enterprises by 2016.

“Privatization is a shared task and a matter of ideology
for the government,” Medvedev said at the meeting. Delays are
being caused by “the energetic lobbying of individual agencies
and individual officials.”

State-controlled companies have swollen to account for half
of Russia’s economy, with the government relying on businesses
including OAO Gazprom (GAZP) and Russian Railways to help finance
expensive infrastructure plans such as the 2014 Sochi Olympics
and the 2018 World Cup, BNP Paribas SA said last year.

FED Stance

Russia is tempering expectations for its asset sales after
Federal Reserve Chairman Ben S. Bernanke roiled global markets
by saying the U.S. central bank’s bond purchases may be reduced
this year, reducing the cash available to hold riskier assets.

The Micex Index of 50 stocks fell 0.7 percent to 1,310.64
as of 3:14 p.m. in Moscow, bringing its loss so far this year to
11 percent. The ruble appreciated 0.2 percent against the dollar
to 32.8805.

With economic growth slowing to the weakest pace since a
2009 contraction, the government is facing revenue shortfalls
from lower tax payments, according to the Finance Ministry. The
ministry forecasts budget proceeds from this year’s asset sales
at as much as 60 billion rubles, compared with 427 billion
rubles written into the budget.

Russia plans to sell as much as 1.7 trillion rubles in
assets between 2013 and 2016, with some of those funds staying
with the companies to finance investment programs, according to
Ulyukayev.

Rosneftegaz Dividends

The budget will get 180 billion rubles next year, 140
billion rubles in 2015 and 300 billion rubles in 2016, he said.
The sum rises to 1 trillion rubles when adding in dividends paid
by Rosneftegaz, the state-run holding that controls OAO Rosneft (ROSN),
as it reduces its stake to 50 percent.

Still, the government may fall short of that figure because
the 380 billion rubles from Rosneftegaz may not materialize,
Siluanov said at the meeting. “In our forecasts, we don’t see
the company having those kinds of resources,” he said.

Russia plans to sell its entire holdings in OAO Rostelecom,
the country’s largest fixed-line operator, OAO State Transport
Leasing Co., OAO Rosspirtprom and Vnukovo airport through 2016,
according to the proposal. The government also is seeking to
reduce its stakes to 75 percent plus one share in OAO Russian
Railways, Transneft and OAO NPK Uralvagonzavod.

The government will reduce its stakes in OAO Alrosa, OAO
Sovcomflot and OAO Aeroflot to 25 percent plus one share during
the same period, Ulyukayev said in the presentation. Stakes in
VTB Group, OAO RusHydro and OAO Rosneft will be cut to 50
percent.

“Our task is to sell these assets at the best price,
raising as much money as possible for the budget,” Medvedev
said. “But that’s not the only goal. Companies need more
effective owners who are capable of managing the very model of
corporate governance to make it more effective, attract long-term investment, and make the companies modern and profitable.”